Accounting mishap led to $1.2M shortfall for Boulder County fire agency, report finds

In early 2010, Boulder Rural Fire Protection District officials announced they'd put into service a new Pierce Quantum Pumper fire engine that had cost the department $632,000. It appears this is the purchase that was not properly accounted for in the district's budget. (Courtesy Boulder Rural Fire Protection District)

Internal accounting errors led to a $1.15 million budget shortfall for the Boulder Rural Fire Protection District in 2015, a gap district officials knew about but didn't understand — or disclose — when they asked voters to approve a $1 million tax increase last year.

Those are the findings of a report by financial investigator James Davis, who was retained by the fire district's board of directors to investigate the budget shortfall. The report is dated Aug. 21, and was sent to firefighters on Tuesday, and obtained by the Daily Camera on Wednesday.

Davis concluded that no money was stolen or misused; rather, accounting mistakes led the fire district to budget spending based on money it didn't have.

The shortfall first was discovered by an accounting manager at Pinnacle Consulting Group, which took over accounting services for Boulder Rural Fire at the beginning of 2015. The manager found an approximately $600,000 shortfall after the 2009 purchase of a fire engine was never recorded in the internal budget spreadsheet used by Deputy Chief Jeff Webb.

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But the investigation also found that accounting errors by Webb led to an additional $500,000 shortfall. According to the report, the bookkeeping company Boulder Rural used before Pinnacle — GAAP Solutions — provided a profit and loss statement every month, designed to be a "snapshot" to help guide the district's spending.

But Webb was using those monthly reports in his spreadsheet every year after he took over accounting in 2004, rather than relying on the final annual audits.

"Webb, (who is not) not an accountant, did not understand the concept of cash versus accrual basis accounting and assumed that the numbers contained in the (monthly reports) were the actual expenses and revenues for the year," Davis wrote in his report.

Webb declined to discuss the district's budget shortfall when reached by phone on Wednesday. Kurt Gattmann, president of the district's board of directors, could not be reached.

The board has scheduled a public meeting at 4 p.m. Thursday at Boulder Rural Fire Rescue, 6230 Lookout Road, to discuss the report.

The tax-funded emergency services district covers about 25 square miles in portions of western, northern and eastern unincorporated Boulder County, including Gunbarrel. The district is staffed by 17 full-time career firefighters and 25 volunteer firefighters.

'Crisis mode'

Heather Kimling, an accountant with GAAP Solutions, said Boulder Rural never at any point asked for the company to take a look at its internal spreadsheets or go over its budget.

"We were never engaged to review their budget documents," Kimling said. "As soon as they paid somebody to look at internal documents, that's when it was discovered."

According to the report, Pinnacle initially found the $600,000 shortcoming and attributed it to the fire engine. But district officials then discovered they were a total of $1.15 million short, and, in Feburary 2015, began budgeting without determining why there was a $500,000 discrepancy.

"The district entered into crisis mode to make drastic budget cuts to survive the balance of 2015 without laying off personnel," Davis wrote in his report. "Focus was diverted away from the reason for the shortfall and directed toward the budget-cutting process and preparation for a mill levy increase."

But Davis, in his report, wrote that "neither Deputy Chief Webb nor any board member understood the numbers included in the adjustment at the time it was made."

"Board members were relieved to have balanced the budget and relied on Webb and Pinnacle to prepare the appropriate paperwork," Davis wrote. "No board member thought to ask, at the time, how the $600,000 shortage required a $1.15 million change."

'It just raised a lot of questions'

Before Webb's accounting errors were discovered, Pinnacle and Boulder Rural initially blamed the shortcoming on GAAP failing to account for the 2009 purchase of the fire engine. But Kimling said she knew that the engine had been accounted for in the district's financial statements.

"I just knew from an accounting standpoint that was not possible," Kimling said. "It just raised a lot of questions about what is really going on."

Further complicating matters, according to the report, were "climate issues" that existed between the firefighters and the chief officers.

The firefighters were "suspect" of the explanation of the shortfall and, with Kimling, investigated it on their own. They discovered Webb's error, but did not report it to chief officers because they believed they already knew about the error, leading the chief officers to continue to believe they had solved the issue.

"This cycle continued, building further resentment on the part of the line and the frustration on the part of the chiefs for the line's inability to let go of the issue," Davis wrote.

According to the report, Webb offered to resign as a "sacrificial lamb" after firefighters delivered a "no confidence" letter to the board in March, but Gattmann did not accept the resignation until the allegations were proven and because he felt Webb's experience would be "vital in weathering the coming budget storm."

The report did find that there was no money stolen or improperly converted, and said the audits came back clean every year.

"It is my assessment that this is an administrative problem, not uncommon with growing organizations," Davis wrote. "As the district grew, it outgrew the ability of firefighters to handle, as collateral duties, the budget and accounting functions that were once handled within.

"There was no attempt to steal or misappropriate funds and errors made in the administration and submission of budgets were entirely unintentional."

But Kimling also said this whole fiasco highlights one of the issues with special districts like the Boulder Rural Fire Protection District.

"Special districts are really not accountable to anybody, yet they have taxpayer money," Kimling said. "They have nobody to report to other than the board of directors."

Kimling said firefighters not knowing accounting is not an excuse, suggesting GAAP could have reviewed their budget and internal documents if asked.

"They have the money, they could have asked us to review things for an hour," she said. "It's a competency issue. If you don't know what you don't know, you shouldn't be running a million-dollar department."

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